Human Capital Management
Q2 2024 Report
Q2 2024 HCM Summary & Outlook
M&A Trends & Outlook:
In the second quarter of 2024, there were a total of 98 acquisitions, a 15% increase from the 85 deals in the second quarter of 2023. Transaction levels decreased by 10% from Q1 2024, but transaction counts are still comfortably above 2023 levels. The Core HR sector continues to witness the highest levels of activity of the sectors tracked, as the market remains focused on consolidating mission-critical solutions Although M&A activity has slowed given the interest rate environment, our outlook remains optimistic that rate cuts and easing inflationary and recession concerns may expedite deal pipelines
VC Trends & Outlook:
Funding in HCM has stabilized around $1B per quarter and average deal sizes have decreased (Page 11), as market uncertainty surrounds exits and stifles funding round sizes VC activity has not yet recovered from the repercussions of the Silicon Valley Bank collapse in Q1 2023, which include increased investor caution surrounding early-stage technology companies This reduction is reflective of the broader VC space, as flat and down VC rounds have reached a decade high1 However, innovative technology companies with strong fundamentals continue to attract interest, and investors are increasingly focused on funding AI-powered startups with the potential for longterm growth
Q2 2024 compared to Q2 2023
Firms are still citing persisting client caution on new hire activity. Even so, large corporates and private equity-backed platforms are pursuing strategically-valuable M&A targets to optimize their commercial positioning. Executive Search continues to garner attention in the market due to demand for leadership-level placement specialization, especially in highly-technical or niche sectors.
Staffing:
• Private equity firm Knox Lane acquired a majority stake in All Star Healthcare, a full-service healthcare staffing firm focused on the locum tenens market
• ServicePoint, a portfolio company of Mill Point Capital, acquired Smart Source, a leading nationwide technology service provider
• Oxford Global Resources, a portfolio company of H.I.G. Capital, acquired Linksap Europe, a provider of SAP software ecosystem consultants Executive Search:
• ZRG, a portfolio company of RFE, acquired Jamesbeck, a leading executive search firm specializing in investment management. Harbor View Advisors served as the exclusive advisor to Jamesbeck
Consolidation continues as companies look to expand their data-driven talent management solutions. Transaction activity was concentrated in learning and communication tools, driven by a demand to effectively improve development and enhance the employee experience through communication and engagement technology.
Learning:
• Consulting firm Accenture (NYSE: ACN) has agreed to acquire Udacity, a workforce education portal which has raised >$300M to date, to enhance their LearnVantage training services platform with AI technology
• Upskilling platform SkyHive was acquired by talent management platform Cornerstone OnDemand to help organizations optimize employees’ career pathways and to offer upskilling curriculum
Communication Tools:
• Govenda, a board of directors communication platform, was acquired by meeting portal OnBoard to improve communications with stakeholder groups
• Payroll and benefits provider Bswift acquired Davis & Company, a communication analytics and employee engagement planning platform, to add HR communication services to its suite of offerings
In Core HR, transaction activity was driven by acquisitions of PEOs and compensation & benefits companies. Consolidation in this space reflects employee demand for readily accessible and transparent compensation and benefits solutions
PEO (Professional Employer Organization):
• Marking its 8th acquisition of the year, PEO Vensure Employer Solutions acquired White Label HR to build its back-office services and reduce costs
• SMB-focused PEO Lyons HR was acquired by benefits provider OneDigital to expand its OneDigital Resourcing Edge PEO solutions into the Southeast region
• Engage PEO, backed by KKR, acquired benefits design and compensation administrator Human Resources Inc. from Lyons HR to expand their administrative technology solutions
Compensation & Benefits:
• Pluxee, a global employee benefits provider, acquired Cobee, which offers compensation and employee expense management via a mobile app, to enhance their technology capabilities
Talent acquisition had the lowest public company performance of the HCM sectors tracked (See Page 2). However, M&A activity increased from Q1 2024, as companies aim to identify qualified talent pools and reduce time-to-hire amidst a competition for specialized talent.
Sourcing:
• Torc, a freelance software talent marketplace platform, was acquired by outsourced digital enablement firm Randstad Digital to accelerate clients’ access to specialized skills in AI, cloud, data, and digital engineering
• Recruiting platform Humanly acquired talent marketplace Teamable to create an AI-powered solution for sourcing, screening, and converting candidates ATS (Applicant Tracking Systems):
• HRIS management platform Workday (NASDAQ: WDAY) acquired resume screening and candidate tracking software HiredScore to help organizations use responsible AI for better hiring and talent management outcomes
• JobConvo, an ATS which integrates video interviews and candidate feedback, was acquired by HRIS Senior Sistemas to expand in the Latin American market
HCM Public Markets
Comparative Multiples
Median Revenue Multiples
TTM Median EBITDA Multiples
Source: PitchBook, Data as of June 2024
Sub-Sector Ecosystem
One-Year Historical Index Performance
The S&P 500 outperformed all four HCM indexes during this period. The Core HR index remained stable and emerged as the top-performing HCM index, with the two largest (>$160B) stocks (ORCL and SAP) increasing their EV by +15%. The Talent Acquisition index decreased by 27%, driven by 3 of the 9 stocks decreasing by over 35% (DHW, NOW, ZIP).
HCM Public Trading Statistics
Rule of 40 Analysis
The Rule of 40 is a financial ratio that assesses a company's performance by adding its revenue growth rate to its EBITDA margin. The rule states that a company's combined growth rate and EBITDA margin should be 40% or higher
The Rule of 40 is not necessarily correlated with a stock’s performance, and several HCM companies that have had a combined revenue growth and EBITDA margin below 40 have experienced yearover-year enterprise value growth
For example, BBSI, Coursera, and Udemy have grown their YoY EV by ~50% while having a Rule of 40 metric of <10%
Rule of 40 & Revenue Multiples Comparison
Count by Sector
Recent Notable Transactions
$173M JUN 2024
UNDISCLOSED MAY 2024
UNDISCLOSED MAY 2024
UNDISCLOSED APR 2024
UNDISCLOSED JUN 2024
UNDISCLOSED JUN 2024
UNDISCLOSED MAY 2024
UNDISCLOSED MAY 2024
UNDISCLOSED APR 2024
• Salt Labs is a developer of an employee reward platform focused on helping hourly workers own the longterm value of their work
• The acquisition will enable Chime to expand its reach, access enterprise client relationships, and start selling directly to employers
• Udacity is an operator of an educational services portal intended to train the workforce in fields like data and artificial intelligence
• The transaction will kick-start Accenture's new "LearnVantage" initiative to give its clients upskilling or training opportunities in tech-related jobs
• Swipeclock is a developer of cloud-based integrated workforce management software for small businesses which track employee time and attendence, scheduling, and leave management
• The acquisition broadens IRIS' integrated Human Capital Management suite, which includes payroll, HR, recruitment and talent management offerings
• Zellis Group provides payroll and HR software solutions to customers in the UK and Ireland, and is also an emerging leader in the global benefits administration software market
• The platform investment will add to Apax Partners’ suite of payroll and HR software solutions and follows their 2018 investment in Paycor
• RFE-backed ZRG, the seventh-largest executive search firm in the U.S., completed another add-on transaction: Jamesbeck, a leading U.S.-based recruitment firm specializing in senior-level talent for the investment management community across private market and traditional firms
• ZRG acquired two other companies in Q1: Ignata Finance (a UK-based executive search and finance recruitment business) and Wiser Partners (a Cincinnati-based marketing and sales executive search firm)
• H.I.G. Capital-backed Oxford Global Resources, a Massachusetts-based IT and life sciences staffing firm acquired Linksap Europe, a UK-based provider of SAP specialty staffing services across Europe
• The acquisition expands Oxford Global Resources’ existing high-end SAP offerings into targeted European markets and customer channels
• Knox Lane made a platform investment into All Star Healthcare, a Florida-based healthcare staffing firm focused on locum tenens and direct job opportunities for physicians – All Star Healthcare’s customers include more than 150 hospital systems and more than 400 healthcare facilities
• The partnership will support expansion of All Star Healthcare’s consultant base, direct sales force, and production teams – as well as All Star’s investments in technology and future add-on acquisitions
• Randstad Digital acquired Torc, an AI-powered, nearshore intelligent talent network connecting quality remote developers with jobs, with a specific current emphasis on LATAM, the US, and India
• This acquisition allows Randstad Digital to further accelerate client access to digital talent, including global delivery centers, to meet its digital ambitions across cloud, data, digital engineering, and customer experience capabilities
• Mill Point Capital-backed ServicePoint, a field services company focused on the design, engineering, installation, and maintenance of technology infrastructure, acquired Smart Source, a provider of IT staffing, multi-site deployment, and technical solutions to VARs, OEMs, MSPs and systems integrators
• This acquisition enhances ServicePoint’s service capabilities, customer reach, and operational scale across its geographic footprint
Spotlight: Outsourced Services
The outsourced professional service market has expanded beyond traditional functions like IT support towards a broader range of services, including financial guidance, sales and marketing enablement, and operations consulting. M&A activity is particularly active among companies serving private equity and VC-backed companies. Institutionally backed companies must invest for growth throughout economic cycles given 3 – 5-year timelines to return money to investors Serving this channel is also attractive since delivering value within one investment may lead to business with others in the portfolio.
Outsourced Office of the CFO
Within the office of the CFO, outsourced accounting and finance teams can add strategic expertise to improve operating visibility and plan for growth. Companies, especially startups and small businesses, are opting for outsourced CFOs, offering cost-effective yet experienced leadership and financial solutions.
AUG 2021
Acquired by
Acquired by SEP 2022
Acquired by APR 2022
Acquired by
Acquired by MAR 2021
Outsourced Office of the CRO
MAR 2022
AUG 2023
Acquired by
Outsourced sales and marketing firms provide a cost-effective approach to scaling revenue. They help to avoid in-house expenses, and companies benefit from a team of experienced sales professionals with advanced analytical tools. Suites serving the CRO create and execute marketing strategies, generate leads, and provide visibility into the sales funnel.
Acquired by
Square 2 Marketing, an outsourced marketing services agency, was acquired by Sales Empowerment Group (SEG). The acquisition provides clients a full click-to-close solution that includes strategic marketing guidance, support for any relevant marketing tactics, creative campaign design and technology services across the HubSpot platform. SEG clients and prospects now have access to the full spectrum of support for their revenue generation efforts.
Operations Consulting
Private equity portfolio companies and add-on investments utilize operations consulting services, including process improvement, strategy development, cost reduction, supply chain optimization, and risk management consulting. Half of all PE investment returns are due to revenue growth1, and funds focusing on operational improvement to find margin are driving the demand for outsourced subject matter experts.
Acquired by
OperationsRx, an operations and supply chain transformation advisory firm was acquired by Accordion, a private equity-focused financial and technology consulting firm. The acquisition will deepen Accordion’s existing supply chain optimization services, will more broadly enhance the firm’s ability to help clients pull operational levers that increase EBITDA, and will further cement Accordion as the holistic go-to-partner for PE-backed CFOs.
HR M&A Transactions
CORE
TALENT MANAGEMENT
HR M&A Transactions
TALENT MANAGEMENT (CONT.)
TALENT ACQUISITION
Jun-24
HR and Staffing M&A Transactions
STAFFING
HCM Financing Summary
Notable Financings
Retracting Average Deal Sizes
$200M APR 2024
RECEIVED
$50M
$45M JUN 2024
RECEIVED
Annual Financing Activity
HR Tech Unicorn Tracker
HCM Financing Activity
EARLY-STAGE VENTURE CAPITAL
Jun-24
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Jun-24
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Jun-24
HCM Financing Activity
Jun-24
Jun-24
PRIVATE EQUITY GROWTH / EXPANSION
About Harbor View Advisors
Operating at the intersection of investment banking and management consulting, we partner with inspiring companies and private equity firms to help them design and execute their strategies for growth or exit. With decades of successful client outcomes, we help growing teams improve their opportunities for success. We provide Sell-side advisory, Buy-side advisory and Strategic Consulting to innovative companies and financial sponsors.
The material in this report is for information purposes only and is not intended to be relied upon as financial, accounting, tax, legal or other professional advice. This report does not constitute and should not be construed as soliciting or offering any investment or other transaction, identifying securities for you to purchase or offer to purchase, or recommending the acquisition or disposition of any investment. Harbor View Advisors does not guarantee the accuracy or reliability of any data provided from third party resources. Although we endeavor to provide accurate information from third party sources, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future.